By Russell Cocks, Solicitor
First published in the Law Institute Journal
The Sheriff for the State of Victoria performs an important function within the Court system, providing an ultimate enforcement procedure for judgments obtain in the Courts.
The Sheriff has been around for a long time. Fans of Robin Hood generally disparage his work but without an ultimate enforcer, Court judgments risk becoming pyrrhic. As an arm of the judicial process, the Sheriff has considerable power to influence the lives of citizens and is liable to review by the Courts. It would be fair to say that the traditional sale process adopted by the Sheriff gave the impression of a preference to the rights of the judgment creditor over the rights of the judgment debtor and appeared to be based on a policy of realising the judgment debtor’s property at all costs, indeed often at great cost to the judgment debtor.
Cases in 2011 and 2012 in the Supreme Court critically analysed the role of the Sheriff and promoted a more proactive role for the Sheriff in analysing the sale process to ensure a fairer outcome for the judgment creditor. This, on at least one occasion, led to the Sheriff’s auction being conducted on-site, rather than at the Sheriff’s Office and an enthusiastic crowd making multiple bids. (see LIJ columns in September 2011 & June 2013) Reform of the sales process had been called for as long ago as 1982, recognising a need for the process to become more transparent by adopting a more commercial focus and perhaps contracting out the auctions to a panel of licenced estate agents.
But Sheriff’s auctions labour under some unique difficulties:
- the Sheriff has no right to access the property during the sales process to allow for inspection;
- indeed, the Sheriff has no right to access the property on the day of the auction and cannot guarantee possession to the purchaser after the auction;
Additionally, the Sheriff only sells the interest of the judgment debtor, meaning that the purchaser takes the property subject to any encumbrances, and the Sheriff is not obliged to hand over the duplicate Certificate of Title (or its electronic equivalent). Given that the purchaser must secure registration of the Transfer from the Sheriff before the writ for possession expires, it can be seen that a purchaser from the Sheriff takes a considerable risk and the Sheriff has developed a formula to take account of this risk.
Hoskin v Griffin (The Sheriff) [2018] VSC 216 revealed that the Sheriff’s process involves a 25% discount being applied to the value of the subject property to take account of these difficulties. The problem with that case is that the starting point, the valuation obtained by the Sheriff, was too low to begin with and the application of the 25% discount to this low value meant that the sale was defective.
The judgment debt arose as a result of failure to repay a mortgage of $165,000 in 2015. By the time the judgment debtor had unsuccessfully sought to contest the judgment, costs and interest had more than doubled the debt to $380,000 in 2017. The Sheriff had obtained a valuation from the Valuer-General in 2015 of $450,000 and a fresh valuation in 2017 of $475,000. The Sheriff then calculated the reserve for the auction by applying the 25% discount, to achieve a figure of $340,000, but increased it to $380,000 in view of the judgment debt. The purchaser at the Sheriff’s auction, held in the Sheriff’s Office, made one bid, equal to the reserve and purchased the property. Evidence before the Court established that the true value of the property was at least $700,000. This meant that the purchaser had acquired the judgment debtor’s equity of around $300,000 for free. The Court concluded that the sale process had failed to obtain a fair price and was therefore in breach of the Sheriff’s duty to the judgment debtor. Unravelling the consequences of that finding was left to another day.
There is little doubt that the judgment debtor made some poor decisions during this unhappy episode. A simple debt more than doubled, opportunities to resolve the dispute were ignored and multiple representatives were engaged. The Sheriff faces a difficult task of balancing the rights of the debtor and creditor and it appears that in this case he was dealt a bad hand by the valuation. But if the Sheriff had have accepted the judgment debtor’s valuation of $700,000, the 25% discount would have resulted in a reserve of $525,000 and it is likely that a prospective purchaser, facing all the problems associated with buying from the Sheriff, would have been reluctant to take the risk. This would have resulted in a second Sheriff’s auction without reserve, an evil criticised in the 2011 & 2012 cases.
The call for meaningful reform, now 35 years unanswered, remains.
Tip Box
•Sheriff’s sales are a necessary evil
•Sheriff’s sales involve risks for purchasers
•Reform is overdue